Uganda’s Lake Albert oil and gas exploration project is currently attracting significant attention from foreign investors. Development of the large deposits of oil and gas in the area is expected to create numerous opportunities in terms of services and infrastructure development, including the USD3.5-billion East African Crude Oil Pipeline project.
Sizeable amounts of oil were discovered in Lake Albert in the remote western edge of Uganda by Tullow Oil in 2006. On 23 April 2020, Total announced it had signed a deal with Tullow Oil to acquire its long-standing stakes in the Uganda Lake Albert project for USD575-million. With Tullow’s exit, the joint venture partners are now Total and China National Offshore Oil Corporation (CNOOC).
According to Dr. Elly Karuhanga, chairman of the Uganda Chamber of Mines and Petroleum this deal brings a lot of hope to the Ugandan oil and gas sector, which was first put in light upon first discoveries in 2006. Dr. Karuhanga spoke at a recent webinar hosted under the theme ‘Taking Advantage of Opportunities in Uganda’s Oil & Gas Sector,’ by the African Energy Chamber and Africa Oil & Power. “It is amazing to see Total sign a deal of over half a million dollars at times when the oil prices are so low. We are grateful for the vote of confidence and are excited about what lies ahead,” said Dr. Karuhanga.
This milestone takes Uganda closer to a long-awaited final investment decision on the Lake Albert Project (Tilenga project) which is associated with the USD3.5-billion East African Crude Oil Pipeline project. The Tilenga project comprises oil exploration, a crude oil processing plant, underground pipelines, and infrastructure in the Buliisa and Nwoya districts of Uganda.
Total’s announcement surprised many as most operators are currently looking to save costs rather than invest in new projects. According to Brian Muriuki, managing director and country chair of Shell Ghana, the Covid-19 pandemic will delay the final investment decision on this project, given the long-term perspective. “However, the project execution and associated timelines may be at risk of delays due to the potential difficulty to mobilise people and put together a strong workforce, depending on how long Covid-19 lasts and how we can contain it,” said Muriuki.
A key aspect of Uganda’s nascent oil and gas industry is the East African Crude Oil Pipeline from Holma in Uganda to the port of Tanga in Tanzania. Stakeholders are hoping the Total transaction will accelerate development. Front end engineering and design works have been finalised as well as environmental and social impact assessments, both in Tanzania and in Uganda. The pipeline route has been traced and the land acquisition process is well understood. According to Gilbert Kamuntu, chief commercial officer of the Uganda National Oil Company there will be no change to the project following Total’s announcement. “We will reach final investment decision imminently and start project execution,” said Kamuntu.
The planned Holma refinery is expected to produce 30 000 barrels of oil per day on commissioning to reach a maximum production of 60 000 barrels of oil per day in subsequent phases. “Total’s announcement has boosted confidence of investors involved in the refinery project, as they can now foresee first oil,” said Dr. Karuhanga.
Despite progress, concerns remain regarding sector recovery during and after the COVID-19 crisis. Answering a question about the exploration contract renegotiation, Kamantu said that governments take a prudent approach to renegotiating product and sharing agreements as they are the basis to operators’ strategy right from the start. “Although we are currently in a Covid-19 situation, a production and sharing contract is a 25-year-long agreement so we can’t go ahead and change the terms on a punctual situation. The Ministry of Energy and Mineral Development of Uganda is considering negotiating extension of periods in order to provide relief to the companies,” said Kamantu.
Uganda currently has an ongoing licensing round which was launched in September 2019 and will close in September 2020. The round includes five blocks for a total acreage reaching 5000km2.
Further discussions about the impact of the pandemic touched on the opportunity for African companies to fill the vacuum. As a local content advocate, NJ Ayuk, executive chairman of the African Energy Chamber, said that this is a great time for domestic companies to step up.
“The real economic impact on major projects will come from local companies, skill transfer, and partnerships with global players. We need to start building on joint ventures and build capacity in the long-term. Cost implications of this model are obviously a factor to consider. Such local content growth can be costly. However, this stance can be an enabler for the economy across sectors. We should quickly negotiate local content parameters to get the project moving forward, without being dogmatic. Local engineers, welders, and pipeline management companies have to be proactive and engage with project leaders right now,” said NJ Ayuk.
The World Bank expects Uganda to grow at a rate of over 10% per annum from oil production and related activity, sending a message to investors that there are immense opportunities for comparatively high returns in Uganda’s oil and gas sector, despite the current challenges of the Covid-19 pandemic.
The article was provided to WhyAfrica by the African Energy Chamber and Africa Oil & Power